The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
As a pensions advice expert, Sterling can provide professional, advice on employee pensions, as well as guidance for employers on auto-enrolment obligations.
Auto-enrolment is a government-led pension scheme, where both the employer and employee are required to contribute to the pension pot. Employers are legally obliged to enrol their employees into a pension scheme.
The qualifying criteria for auto-enrolment:
- The employee must work in the UK
- The employee must not already in a suitable workplace pension scheme
- The employee must be at least 22 years old, but under State Pension age
- The employee must earn more than £10,000 a year.
Employees have a right to opt out of auto-enrolment and, providing the employee opts out within a month of being enrolled, they will be refunded in full. Employers are only obliged to action an opt out request every twelve months.
Once an employee opts out, they are free to rejoin at a later date - furthermore, employers are obliged to automatically enrol employees back into the scheme three years after they have left. Employees who are not automatically enrolled can also ask to join a workplace pension scheme.
Existing members of a workplace pension scheme may not be affected by auto-enrolment, providing that existing scheme meets the minimum standards of the new scheme. If, however, an employer's contributions fall below the minimum contributions for auto-enrolment, the employer may need to increase their contributions.
If you work for more than one employer, you could be enrolled in each employer's scheme, and it may be possible to consolidate multiple pensions under once scheme.
Self-employed workers are not legally required to enrol into a workplace pension, though it is advisable, as the current state pension is not expected to provide sufficient income for retirees in the future.
Workers on zero-hours contracts, as well as workers receiving maternity or paternity pay, will also be auto-enrolled provided they meet the conditions.
Once enrolled in a workplace pension, employees pay a minimum of 5%. of qualifying earnings, whilst your employer will have to pay 3% of qualifying earnings.
The government will usually subsidise a workplace pension in the form of tax relief if the following applies:
- The employee pays Income Tax
- The employee pays into a personal pension or workplace pension
Employers have a number of options when setting up a workplace pension:
- To use the existing workplace scheme
- To amend the existing scheme so that it meets the qualifying criteria
- To set up a new pension scheme meeting all the criteria
- To use NEST (the National Employment Savings Trust) - a new scheme available to any employer to use a combination of these options for different areas of their workforce.
The Financial Conduct Authority does not regulate on Auto-Enrolment.